Three Sisters v Fiji Revenue and Customs Authority [2013] FJTT 1; Decision17.2012 (3 January 2013)

IN THE STATUTORY TRIBUNAL, FIJI ISLANDS
SITTING AS THE TAX TRIBUNAL

Income Tax Appeal No 5 of 2009
Income Tax Appeal No 6 of 2009
Income Tax Appeal No 7 of 2009

BETWEEN:

THE THREE SISTERS
Applicants

AND:

FIJI REVENUE & CUSTOMS AUTHORITY
Respondent

Counsel: Mr V Singh, Parshotam & Co, for the Applicants
Ms R Malani & Mr S Vukica, FRCA Legal Unit for the Respondent

Date of Hearing: Monday 26 November 2012
Date of Judgment: Thursday 3 January 2013

JUDGMENT

INCOME TAX ACT (CAP 201) – Section 11; Capital Gains; Disposition of Property; Objective Purpose Test of Acquisition; Dealing in Land;

Background

1. This is an application for review against the decision of the Respondent Authority dated 7 October 2009, disallowing the objection of the Taxpayers to a Notice of Assessment dated 18 April 2008.
   
2. The Agreed Facts prepared by the parties are as follows:-
   
   • The Applicants are three sisters, daughters of Mr A.
     
   • Mr A was the registered proprietor of a property located at Raiwai, Suva.
     
   • On 1 September 2002, Mr A executed an instrument of transfer and transferred his interest in the property to the Applicants by giving each an undivided third share.
     
   • The transfer was registered by the Registrar of Titles on 27 November 2002.
     
   • In consideration of the transfer, Mr A was to be paid $65,000.00 by the Applicants.
     
   • Mr A effected the transfer in the disposition of his property prior to his death on 19 March 2006.
     
   • On 14 March 2008, the Applicants by their Attorney, executed an instrument to transfer their interest in the property to Company K, an entity incorporated in Fiji and having its registered office in Suva City. The amount of consideration was $220,000.00.
     
   • On 18 April 2008, the Respondent Authority assessed that each of the Applicants were to pay income tax of $14,866.77, as assessed by it, as gain made on the sale of the property by the Applicants.
     
   • On 19 May 2008, the Applicants paid the income tax as assessed in the Assessment to the Respondent.
     
   • On 19 May 2008, the Applicants through their solicitors filed their Notice of Objection to the Assessment with the Respondent.
     
   • On 7 October 2009, the Respondent made its decision, disallowing the Notice of Objection to the Assessment by the Applicants.
     

Issues Before the Tribunal

3. The issue before this Tribunal is whether or not, the proceeds derived from the sale of the property, is income for the purposes of the Income Tax Act (Cap 201).
   
4. The application is heard in accordance with the relevant provisions of the dministrnistration Decree 20d thed the Maates Ctes Court (Amendment) Decree 2011.
   

a>The Case of the TaxpaTaxpayers



The Taxpayer Applicants are three sisters who acquired equal shares in the Raiwai property in 2002.

6. The father nominally sold the property to his daughters for an amount of $65,000.00, but then through a Deed of Forgiveness, absolved them from that debt.[1]
   
7. The evidence of the only Taxpayer to give evidence, Daughter N, was that her father remained living in the said property, with Sister S, who now resides in New Zealand, until his death. Sister S subsequently moved to New Zealand after the property was sold.
   
8. Since 2007, all of the three sisters now reside permanently overseas.
   
9. The three sisters sought Land Sales Tax Exemption, in accordance with Section 5 (b) of the Land Sales Act (Cap 137), on the basis that there has been substantial development by the seller or any predecessor in title.
   

Issue Before the Tribunal



10. The issue before this Tribunal is whether or not the proceeds of sale are income for the purposes of Section 11 of the Income Tax Act (Cap 201).
    
11. That provision is set out as follows:
    

For the purpose of this Act, ―total income means the aggregate of all sources of income including the annual net profit or gain or gratuity, whether ascertained and capable of computation as being wages, salary or other fixed amount, or unascertained as being fees or emoluments or as being profits from a trade or commercial or financial or other business or calling or otherwise howsoever, directly or indirectly accrued to or derived by a person from any office or employment or from any profession or calling or from any trade, manufacture or business or otherwise howsoever, as the case may be, including the estimated annual value of any quarters or board or residence or of any other allowance or benefit provided by his employer or granted in respect of employment whether in money or otherwise, and shall include the interest, dividends or profits directly or indirectly accrued or derived from money at interest upon any security or without security or from stock or from any other investment, and whether such gains or profits are divided or distributed or not, and also the annual profit or gain from any other source including the income from, but not the value of, property acquired by gift, bequest, devise or descent, and including the income from, but not the proceeds of, life insurance policies paid up upon the death of the person insured, or payments made or credited to the insured on life insurance, endowment or annuity contracts upon the maturity of the term mentioned in the contract:



12. In addition, the general provision is supported by Section 11(a) of the Act, that contains within it three illustrative examples (limbs). In the case of this first limb, it reads:
    

any profit or gain accrued or derived from the sale or other disposition of any real or personal property or any interest therein, if the business of the taxpayer comprises dealing in such property; (my emphasis)



13. The ‘second limb’ reads fully:
    

any profit or gain accrued or derived from the sale or other disposition of any real or personal property or any interest therein, if the property was acquired for the purpose of selling or otherwise disposing of the ownership of it



14. The third limb deals with any profit or gain derived from the carrying on or carrying out of any undertaking or scheme entered into or devised for the purpose of making a profit.
    
15. Finally, there is an exclusionary provision to Section 11(a). It provides that none of the three illustrative examples (the ‘three limbs’) shall be considered to contribute to total income, where the profit or gain derived from a transaction of purchase and sale does not form part of a series of transactions and which is not in itself in the nature of business. In McClelland v Commissioner of Taxation,[2] the Privy Council concluded that a single transaction can fall within the notion of assessable income, where the undertaking or scheme exhibits features that give it the character of a business deal.[3]
    

Was the Acquisition of the Property a Gift and Therefore Excluded from the Notion of Income?



16. It is noted that the general provision does include as income, “income from, but not the value of, property acquired by gift “.
    
17. In the case before me, I am not prepared to accept that a gift to the Taxpayers by their father was perfected at the time that the transfer of property was signed by the father on 1 September 2002.
    
18. For the reasons set out within Choy Joe Kong v The Commissioner of Estate and Gift Duties[4], at the earliest, the Deed of Forgiveness was formalised on 9 September 2002. The property had already been transferred to the Applicants at that stage, for consideration of $65,000.00.
    
19. I therefore find that at the relevant time, the value of the property acquired by the Taxpayers, was not an excluded gift for the purposes of Section 11 of the Act.
    

Was the Sale of the Property Caught by Section 11 of the Act?



20. To gain an understanding of the expansive nature of this provision, it is instructive to consider the Second Reading Speech of the Commissioner for Inland Revenue in 1957, when introducing to the Legislative Council the relevant provisions that are now Section 11(a) of the Act.
    
21. At that time[5], he said:
    

Despite the criticism that has been aimed at it, (the clause) is merely a clarifying clause. The section it proposes to clarify is an important one as it defines "total income". This provisions now writes into the law what is believed is already in the law, but it has been a matter of continual dispute and I believed that it is now necessary to have this in the law so that the taxpayer can see how and on what he is liable to pay taxes...........

This definition follows very closely that laid down in the model orce and has often been referreferred to as "wide as a church door". I too believe that it is and, also, the few people who have disputed it in Court have found it is....

The new provision has been referred to in these terms: "It seems unand un-British in so far asar as it sets to tax items of capital" Similar provisions are written into most British laws either by inference or specifically, mainly specifically, and I do not consider, Sir that they are unjust and un-British. In order to determine whether it sets out to tax items of capital, I would like to refer to a now famous remark of the Lord Justice Clarke in the case of Calian Copp Copper Syndicate v Harris, 5 Tax Cases 165:


"it is quite a well settled principle in dealing with questions of assessment of income tax that where the owner of an ordinary investment chooses to realise it, and obtains a greater price for it than he originally acquired it at, the enhanced price is not profit in the sense of ...assessable to income tax. But it is equally well established that enhanced values obtained from realization or conversion of securities may be so assessable, where what is done is not merely a realization or change of investment, but an act done what is truly the carrying on or carrying out of a business..."




I contend, Sir that the proposed amendment, or rather I pref call it the addition, to our law, does nots not intend to by-pass the principle laid down in those remarks.



22. The language of the Commissioner is quite clear. The additional provisos at Section 11(a) were clarifying examples. So much can be ascertained by the use of the language that commences that sub-section, where it states,
    

without in any way affecting the generality of this section, total income, for the purpose of this Act, shall include –



23. In Bull v Commissioner of Inland Revenue, the majority judges held:
    

Itof courseourse, right to say that the courts resort to extrinsic materials in order to interpret statutes only in cases of ambiguity (Re Bolton; Ex parte Beane [1987] HCA 12; ( 162 CLR 5CLR 514).If the text is clear, the text must prevIf, hr, the text is ambiguous or admitadmits of s of more than possible interpretation - and if our interpretation be not accepted, the language of s.102(b) would necessarily give rise to ambiguity - it is now widely accepted in many common law jurisdictions that recourse by the courts to legislative history and extrinsic materials is a legitimate aid to interpretation. For present purposes it is sufficient to refer to the decision of the House of Lords in Pepper vt&#art [1993] AC#193 where the rule excluding reference to Parliamentary materials as an aid to statutory cuctio was relaxed so as to perm permit such reference when-




(1) the legislation is ambiguous or obscure or leads to absurdity,

(2) the material relied upon consists of statements by a Minister or other promoter of a Bill together with such other Parliamentary material as is necessary to understand such statements, and

(3) the statements are clear.



24. I am quite satisfied that the language of Section 11 of the Act, incorporates the specific examples givens within Section 11(a). And as these specific examples are not on point in relation to the matter before me, I will prefer to look within the language of the general provision to reach my determination.
    

The Scope of Section 11



25. The Scope of this provision is wide. It is wider than the model source law, from which the definition of income appears to have been derived.[6] It is also perhaps relevant to point out that it was also introduced in different circumstances to that of the counterpart Commonwealth law.[7]
    
26. The inclusion of the words, "or otherwise howsoever" extended the definition of the concept of income, beyond that of the source law, that it appears borrowed from. The fact that it was included twice within the provision, both to describe the source of where it comes and secondly, how it is derives, makes the intention of the legislature all the more noticeable. This was clearly intended as a drafting means of 'covering the field'. And while there is an easy attraction to the belief that the words "otherwise howsoever" should be read as falling within the same class of words as those preceding them, such as "any office or employment or from any profession or calling or from any trade, manufacture or business", I am not convinced without further analysis, that this was the intention of the parliament at the time.
    
27. In Attorney-General (NSW) v Metcalfe[8], the High Court of Australia held,
    

At one time, no doubt, the rule of ejusdne generis waewhat libt liberally ad, so as to construe generaeneral words as being cut down by the use of anent specifiecific words. But in the more modern cases, such as Anderson v. Anderson[1895] UKLawRpKQB 36; , (1895) 1 Q.B., 749, and others of the same class, there has been a contrary tendency, and in general the rule has been adopted of giving the words their natural construction.



28. While it is unclear the scope of what was being sought to be captured by these additional words, there was clearly a purpose in doing so. Regardless, in determination of the present case though, it is unnecessary to delve any further. At the time of the 1957 amendments to the legislation, the intent of the parliament would seem quite clear. The approach adopted within the decision of Lord Justice Clerk in Californian Copper Syndicate v Harris[9], was seen to have shaped the manner in which the notion of income had been considered. That was,
    

where the owner of an ordinary investment chooses to realise it, and obtains a greater price for it than he[10] originally acquired it at, the enhanced price is not profit in the sense of ...assessable to income tax. But it is equally well established that enhanced values obtained from realization or conversion of securities may be so assessable, where what is done is not merely a realization or change of investment, but an act done what is truly the carrying on or carrying out of a business..."



29. I am satisfied that I can therefore embrace these principles for the purposes of the general provision. The Taxpayers were involved in an exercise in realizing an investment, or converting an asset. It was not an act done in the carrying on or carrying out of a business. The proceeds arising from the sale on 14 March 2008, do not fall within the definition of income for the purposes of the Act.
    

Other Issues



30. In light of the above determination, I nonetheless am of the belief, that the transaction proceeds would be amenable to land sales tax to be charged in accordance with Section 3 of the Land Sales Act (Cap 137). I also would encourage the Respondent to consider the adequacy of the consideration identified as being $65,000.00 at the time of acquisition of 1 September 2002. This may have implications for the parties having regard to Section 11 of the Land Sales Act.
    
31. Finally, on the basis that the Applicants do not appear to have agitated their position earlier in relation to the existence of a gift and the subsequent Deed of Forgiveness entered into on 9 September 2002, I am reluctant to order costs, as I believe that the case has been unnecessarily brought before the Tribunal in such circumstances. The Respondent cannot second guess the case of the Applicants. The Applicants through their lawyers should have brought all relevant information before the Respondent at the earliest opportunity. For whatever reason, they have failed to do so.
    

DECISION




(i) The Application for review is upheld.

(ii) The Respondent is ordered to reissue the Notice of Assessment according to law.

(iii) The Application for costs is refused.


Mr Andrew J See

Resident Magistrate

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^[1] Document 2 of the Applicants List of Documents, filed 24 November 2012.
^[2] (1970)120 CLR 487
^[3] At [27]
^[4] Supreme Court of Fiji 24 November 1983.
^[5] See Fiji Council Debates 6 December 1957, pages 380-384.
^[6] See Canadian Income War Tax Act (1917)
^[7] The Canadian law was supposedly introduced as a short term war-time measure and was complementary to Dominion income tax law operating within that country at that time. (See for example, Rieksts.M, The History of Income Tax in Canada, LawNow July/August 2010; See also Bosson.J., The Objectives of Taxation and the Carter Commission Proposals in Canadian Public Administration, Volume 12, Issue 2, June 1969, pp137-165.
^[8] (1904) 1 CLR 421
^[9] (1904) 5 T.C. 159
^[10] I presume that the language intends to cover the case of female investors as well.